Answered: Sell at Split-Off or Process Further…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 66P: Sell at Split-Off or Process Further Eunice Company produces two products from a joint process....

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Sell at Split-Off or Process Further

Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 14,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off for $10 per pound. A buyer of HS asked Bozo to process HS further into CS compound. If HS were processed further, it would cost $32,300 to turn 14,000 pounds of HS into 4,000 pounds of CS. The CS would sell for $52 per pound.

Required:

1. What is the contribution to income from selling the 14,000 pounds of HS at split-off?
$

2. CONCEPTUAL CONNECTION: What is the contribution to income from processing the 14,000 pounds of HS into 4,000 pounds of CS?
$

Should Bozo continue to sell the HS at split-off or process it further into CS?

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